John Hancock: Weekly Market Recap Week Ended September 18

Weekly Market Recap: Fed Raises Rates as Growth Stocks Outperform

The Federal Reserve unanimously approved its first benchmark interest-rate increase since 2023. The decision represents a shift in monetary policy following the earlier cycle of rate increases used to address the sharp rise in inflation after the pandemic.

Updated projections indicate that most Federal Reserve policymakers expect at least one additional quarter-percentage-point increase before year-end. Investors will continue watching inflation, employment and economic-growth data for clues about the timing of the Fed’s next move.

U.S. Dollar Moves Higher

The U.S. dollar strengthened following the Federal Reserve’s announcement, reaching its highest level relative to a basket of major currencies since late July.

The dollar gained approximately 1.1% for the week, bringing its year-to-date increase to around 2.0%. Higher U.S. interest rates can make dollar-denominated assets more attractive to international investors, providing additional support for the currency.

A stronger dollar may benefit American consumers purchasing imported goods or traveling internationally. However, it can also create challenges for U.S. companies that generate significant revenue overseas because foreign earnings may translate into fewer dollars.

Short-Term Treasury Yields Rise

Treasury yields generally moved higher as bond prices declined following the Fed’s decision. The largest increase occurred among shorter-term securities, which tend to respond more directly to changes in monetary policy.

The 2-year Treasury yield ended the week at 4.76%, rising from 4.63% the previous Friday. The 10-year Treasury yield edged higher to 5.01%, while the 30-year yield finished slightly lower at 5.33%.

The larger increase in short-term yields caused the yield curve to flatten. This movement reflects expectations that interest rates may remain elevated while investors continue assessing the longer-term outlook for inflation and economic growth.

Growth Stocks Lead the Week

Large-cap growth stocks outperformed their value-oriented counterparts by a considerable margin. The growth benchmark gained approximately 0.9% during the week, while the comparable value index declined about 1.1%.

Growth companies can be sensitive to changing interest rates because much of their value is based on expectations for future earnings. Despite the week’s performance, value stocks continued to hold an advantage for the year.

What Investors May Be Watching

The Federal Reserve’s future decisions will likely depend on incoming economic data. Investors will be paying close attention to inflation readings, labor-market conditions, consumer spending and corporate earnings.

With interest rates, Treasury yields and equity leadership continuing to shift, maintaining a diversified investment strategy may help investors remain focused on their long-term objectives rather than short-term market movements.

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